By Gabriel Chan

LOCAL banks and insurers may have to appoint more independent and knowledgeable directors to their boards under more stringent regulations.

Directors may also face an annual review of their skills and a time quota to ensure they spend enough time on the job.

A series of proposals put forward by the Monetary Authority of Singapore (MAS) yesterday is in line with similar moves by regulators around the globe in the wake of the global financial crisis.

The MAS proposals aim, for instance, to tighten the rules applying to independent directors. These directors are meant to be at arm's length to the company on whose board they serve - and to challenge decisions where appropriate.

Under the proposals, a director will no longer be considered independent if he has served nine years straight on a board.

That means that in order to be deemed 'independent', a director must satisfy four criteria instead of the current three.

The existing requirements are: that the director should be independent from management, from substantial shareholders, and from business relationships.

Another proposal is to lift the number of independent directors on the nominating committee, remuneration committee and board from one-third to a majority.

These two changes should take effect no later than the first annual general meeting of each financial institution held on or after Jan 1, 2012, MAS said.

Most of the other proposals contained in a consultation paper released yesterday would take effect much earlier.

The proposals will enhance a corporate governance framework that it implemented three years ago, which called for a stricter definition of director independence and tighter board independence.

Companies set to be affected by the new rules include: DBS Group Holdings, United Overseas Bank, OCBC Bank, Citibank Singapore and insurers such as Great Eastern Holdings and new giant on the local scene Prudential Assurance.

MAS said the financial crisis provided valuable lessons on corporate governance and that it is timely for it to enhance the existing framework.

'Board and senior management must take responsibility to ensure that the institution has the competency and depth to put in place a robust governance culture,' said MAS deputy managing director for the prudential supervision group Teo Swee Lian yesterday.

Independent directors serve not only as a check and balance to management and majority shareholders, but also protect the interests of the firm.

MAS is also considering changing requirements tied to compensation, the skill level of board members and the time commitment from each director.

The nominating committee would have to assess the current skills of the board annually, it said.

And in a move likely to please shareholder advocates, MAS has proposed the same committee set internal guidance on the time commitment expected of each director to ensure they devote the time needed to perform their oversight roles.

A survey last year by the National University of Singapore's Corporate Governance & Financial Reporting Centre found that while most directors of listed companies here hold a single board seat, a number are holding at least six, including several with over 10 board seats.

'The time commitment is useful, as you need time to serve boards of this nature,' said Institute of Certified Public Accountants of Singapore president Ernest Kan.

Law firm Shook Lin & Bok partner Robson Lee, an independent director at several listed firms here, said the proposals were a step in the right direction.

'It is of paramount importance for Singapore banks, as custodians of public funds, to have a significantly independent board... who is able to exercise board oversight effectively without any undue influence from the controlling shareholders of the banks,' he said.

The impact of the proposals on banks and insurers - and details of how they plan to tackle them - remain to be seen.

Life Insurance Association of Singapore president Tan Hak Leh said: 'It is clear from a quick glance that the key proposals taken together could have major impact on individual insurers.'

Citibank Singapore's chief executive Anil Wadhwani said it will assess the impact of the proposals on its operations.

This article was first published in The Straits Times.